From 'Blockchain Hype' to a Real Business Case for Financial Markets

There
has been a lot of noise in the press about the great potential uses for
financial markets of Bitcoin-related technology, that could be
extracted from the Bitcoin world and applied to existing markets to
increase efficiency dramatically. Later, there has been a lot of noise
about the fact that there is no actual use but all boils down to a
generic enthusiasm called Blockchain Hype, and Bitcoin is the only
reality where such technology can be fruitfully used.

This paper
shows that there are real business cases for improving financial
markets based on the lesson learnt from cryptocurrencies, but,
differently from what the hype-enthusiasts say, they are not application
of a technology to the existing business model of financial markets.
They are reforms of the business model itself. What needs to be exported
from the world of cryptocurrencies are aspects of the market
organization, inspiration for a different accounting and legal system,
and some aspects of the technology. These can be a huge contribution
towards more robust, efficient and stable markets, but the process
cannot be immediate and effortless, and can only be achieved within a
market-wide strategic view.

One crucial misunderstanding here is
the idea that Blockchain Technology can be exported to financial
markets as they are to make them more efficient. This is meaningless;
Blockchain technology was created to change some trust-based business
processes to make them less reliant on trust; without structural changes
in this direction the best of Blockchain technology is lost and just
the inefficiencies are left. This misunderstanding is the perfect
partner of the idea that Blockchain technology cannot be used outside
the Bitcoin world. This is equally meaningless; Bitcoin was created to
attempt a level of independence from trust sufficient to allow players
to be anonymous and do without any legal protection; other business
solutions based on a level of trust intermediate between Bitcoin and
traditional finance can use similar technology and yet be very different
from Bitcoins. But we must ready to use the concept of trust in a
totally different way, as a way to analyze the different parts of a
business process and the reason for its current inefficiencies and
risks.

In the next we develop these concepts first in a parallel
analysis of cryptocurrencies and financial markets. Then we focus on a
specific business case regarding the collateralization of financial
derivatives, that we describe bottom-up including quantifiable benefits
in reducing costs, capital and risk. It is an example where the use of
cryptocurrency technology is not more important than the business ideas
developed in the analysis of cryptocurrencies; yet it was unconceivable
before examples of distributed ledgers, smart contracts and oracles were
visible in marketplaces. In fact, it was first presented in Morini and
Sams (2015), in an introduction of the Blockchain innovation for the
derivatives world.